The eight-story brick and steel building in Portland's Old Town was supposed to bring money, residents and more development to one of the city's most visible and troubled neighborhoods.

The condo project accomplished those goals, but nearly five years after the last unit sold, the developers still owe $1.8 million to taxpayers -- with a plan to pay less than half of it back while maintaining a profit for themselves.

The outstanding debt on Old Town Lofts has surfaced as an issue in a race for Multnomah County commissioner: Candidate Judy Shiprack, a former state legislator, spearheaded the $13.5 million development as executive director of the nonprofit developer.

Shiprack, who faces a runoff for a board seat in the November general election, acknowledged that her handling of the project "doesn't look good for me."

Shiprack's company, LINK Community Development Corp., has missed payment deadlines on city loans, ignored contractual requirements and pushed for financial concessions from the city. For its part, the city appears to have repeatedly given breaks to the longtime political insider.

"There are mistakes I own," Shiprack said. "In hindsight I would have done it differently, but if I hadn't been here, the building wouldn't be here. The building is a bold, pioneering asset to this community."

LINK borrowed $3.3 million from the Portland Development Commission, the city's urban renewal agency, for Old Town Lofts -- middle-and high-end condos at Northwest Fourth Avenue and Flanders Street in a neighborhood better known for homelessness and drug-dealing. Most of the units sold between $150,000 and $250,000, though the penthouse units cost more.

The project received another $1.7 million in special mortgage assistance from the development commission for income-eligible buyers of 28 units of the 60 units.

The lofts, completed in 2001, came in over budget, the units sold for less than expected and other costs exceeded expectations, such as a $200,000 settlement with the homeowners association over construction defects that left residents battling moisture problems.

LINK ended up broke and defaulted on its loans. Last year, the state dissolved the nonprofit because it failed to file required annual reports.

Public records show Shiprack earned a reputation as a "difficult borrower," quick to ask for favors, but slow to respond to the Portland Development Commission's requests, particularly its push for a resolution.

Staff at the agency also appeared to treat Shiprack gently, PDC records show.

Siobain Beddow, the agency staffer charged with managing the project, wrote in an internal e-mail: "I've been instructed to not be aggressive on pursuing the sale of additional collateral for this project (i.e. don't foreclose)."

Beddow wouldn't tell her supervisors who gave her that instruction, said Shawn Uhlman, a PDC spokesman. Her boss, Komi Kalevor, said he gave no such instruction.

Shiprack has had a long career in local politics, in the state Legislature and more recently working for her longtime friend, County Commissioner Lisa Naito, whose seat she's trying to win. In May, she won 37 percent of the vote in a six-person primary, more than twice the total of her nearest opponent, Mike Delman. Delman did not return calls for comment.

Her husband, Bob Shiprack, is head of the Oregon Building and Construction Trades Council and one of the state's most influential union leaders. Bob Shiprack was vice president of the board of directors for LINK and his daughter was one of the first to buy a subsidized unit in the lofts project. Naito was also a member of the board.

Shiprack said she and her husband never asked for special treatment while dealing with the development agency. "That is not my style," she said. Her explanation for the employee concerns: "PDC culture is a culture of fear."

One option not seriously considered was foreclosure. In June 2007, the PDC declared Shiprack in default and warned that foreclosure was a possibility. But it never took action.

"We rarely foreclose," said Kalevor, now interim housing director at the agency. "We have it as an option, but we usually work it out and we will work this out as well."

Shiprack's most recent proposed settlement came in December, calling for the city to receive just $680,000 in assets -- a large still-vacant ground-floor commercial space and nine parking spaces at the lofts -- while leaving LINK with an estimated $240,000 in assets -- 12 parking spaces -- to pay off remaining debts and turn a small profit on the project "so we can continue to exist."

Shiprack defends her proposal, likening the deal to the type of subsidies that the city sometimes awards development projects, noting that the cost to the public amounts to about $14,000 per unit.

"This just unfortunately happens to be subsidized at the exit rather than in the way in," she said.

The city still hasn't received a response to a list of questions regarding the proposal sent to Shiprack in January, Uhlman said. The agency will continue working on a settlement after the November election, Kalevor said.

Despite the difficulty recouping its money, Kalevor called the project a success. "It was a pioneering project," he said. "It's done a lot of good for the neighborhood."

Alexander Mace, a resident of Old Town Lofts and president of the neighborhood association, credited the building with bringing in young professionals and encouraging more development. "It increased the number of people who call it home rather than just a place to go out and grab a drink," he said.

That's the legacy Shiprack thinks voters should focus on.

"Affordable housing is messy, affordable housing isn't easy. If it's easy, this neighborhood would look a lot different," Shiprack said. "Mistakes were made, but in proportion they shouldn't overwhelm the success of the building."